People are willing to pay a lot for in-home tech support. Last year, Best Buy's (NYSE: BBY) services segment, which includes the Geek Squad, generated over $2 billion in revenue for the company. Management sees services like Geek Squad as a big growth opportunity for the company.
But Jeff Bezos is once again proving that no retailer is safe from Amazon (NASDAQ: AMZN). The company has been quietly operating its own in-home smart home consultation service in select cities, and it reportedly plans to expand to more places later this year. The company already offers in-home services like device installation through a third-party marketplace, but the smart home service will be run in house.
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Considering Amazon's strong position in smart home appliances via its Alexa interface, it's in a good position to take on Best Buy's Geek Squad along with other competitors in the space.
Dominating the smart home market
Amazon is already a dominant force in the smart speaker market with its pioneering line of Echo speakers. eMarketer estimates Amazon will take over 70% of the market for voice-enabled speakers, with Google taking about 24%. What's more, consumer adoption could more than double in 2017.
This presents a great opportunity for Amazon to upsell consumers on in-home services centered around Alexa-enabled devices like thermostats, lights, and other appliances. It also gives Amazon a chance to sell more devices that work with Alexa, locking customers into its ecosystem.
But the company is facing increased competition in the area. Google released its own smart speaker last year, Google Home, and Apple just unveiled HomePod. Other big tech players are moving into the space a well. Ensuring customers buy Alexa-compatible devices as they start picking up more smart home technology is essential to protect Amazon against competitors. In-home consultations, which it is offering for free, will help build that moat.
Building another revenue stream
Amazon's $99 in-home setup services present yet another revenue stream for the online retail giant. As previously mentioned, Best Buy generated over $2 billion from services last year. While $2 billion isn't very much revenue for Amazon (it generated nearly $136 billion in sales last year), it also presents an opportunity for Amazon's in-home techs to sell more products.
Geek Squad certainly supports retail sales at Best Buy. The service itself may entice customers to do their shopping at the big box retailer, because they know they can package in technical support. On top of that, Geek Squad can recommend additional products for customers to buy from the store.
Likewise, Amazon's in-home services help customers set up shopping lists on Alexa devices, according to Recode. The company has been incentivizing customers to shop through Alexa with various promotions, but just having someone show them it's possible could be even more valuable. If this in-home tech support grows in popularity, it could ultimately attract customers to shop for smart home products at Amazon, just as Geek Squad encourages shopping at Best Buy.
Amazon: the services business
As Amazon shifts into more services, from cloud computing to grocery delivery to tech support, it's further diversifying away from retail to related areas. If you think about it, Amazon is the biggest customer of Amazon Web Services, and Whole Foods could be the biggest customer of Amazon's grocery delivery. Meanwhile, in-home services becomes a marketing arm for Alexa-compatible devices.
Investors should watch for the company to continue expanding into these kinds of opportunities. These synergies within the company allow it to scale quickly and offer competitive pricing to customers. That makes Amazon a big threat to all sorts of companies in both retail and technology.
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John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool’s board of directors. Adam Levy owns shares of Amazon and Apple. The Motley Fool owns shares of and recommends Amazon, Apple, and Whole Foods Market. The Motley Fool has a disclosure policy.